Purchasers of private companies sadly often feel that they have been sold a pup, but making such an assertion is a great deal easier than proving it. That was certainly so in a case concerning the acquisition of a commercial lettings agency in which the High Court considered the inner workings of internet property platforms.
The agency provided services to residential landlords, primarily online. One of those services was a facility that enabled private landlords to advertise their properties for rent on various well-known online property platforms. The agency was able to provide that facility as a fee-paying member of the platforms.
By a share purchase agreement (SPA), two individuals agreed to buy the agency's entire issued share capital. However, they later refused to pay a deferred sum under the SPA. The sellers launched proceedings to recover that sum but the claim was resisted by the buyers, who counterclaimed damages from the sellers, alleging breach of warranty and misrepresentation.
The buyers' principal complaint was based on an assertion that the platforms do not permit their websites to be used by members, such as the agency, for the purpose of advertising lettings on behalf of other commercial operators. The buyers accepted that the sellers had informed them of the existence of those restrictions. However, they said that they were not told that the agency was operating in breach of them. Had they been aware of the true position and its serious financial implications, the buyers said that they would not have entered into the SPA.
Following a preliminary hearing, however, the Court found nothing in the contractual arrangements between the agency and the platforms that imposed the restrictions alleged. The terms of the agency's membership of the platforms contained no clearly expressed ban on placing adverts on behalf of other commercial lettings agents.
The Court acknowledged that the platforms may not be happy if their fee structures were bypassed by the placing of such adverts. However, it was no part of the Court's role to enquire into the platforms' business models or commercial motives. It was not for the Court to rewrite contracts or to impose on parties to them terms that it might consider reasonable.
The Court granted the sellers a declaration that the buyers had no real prospect of showing that the agency was, when the SPA was signed, prohibited from placing adverts on the platforms on behalf of other commercial lettings agents. Summary judgment was entered against the buyers on that issue and another relating to a warranty in the SPA. Further issues in the case would be considered at the full trial of the action.
For help or advice on this topic or other commercial matters, please speak to Roy Colaba r.colaba@sydneymitchell.co.uk 0808 166 8827
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